Amended in Senate March 24, 2014

Senate Bill No. 1215

Introduced by Senator Hernandez

February 20, 2014

An act to amend Section begin delete 1367.006 of the Health and Safety Code, and to amend Section 10112.28 of the Insurance Code, relating to health care coverage end delete begin insert 650.02 of the Business and Professions Code, relating to healing arts end insert .

LEGISLATIVE COUNSEL’S DIGEST

SB 1215, as amended, Hernandez. begin delete Health care coverage. end delete begin insert Healing arts licensees: referrals. end insert

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Existing law provides for the licensure and regulation of healing arts professionals by boards within the Department of Consumer Affairs. Existing law makes it a crime for licensed healing arts professionals to receive money or other consideration for, or to engage in various related activities with respect to, the referral of patients, clients, or customers to any person, with specified exceptions.

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Existing law also makes it a crime for a licensed healing arts professional to refer patients for specified services if the licensee or his or her immediate family has a financial interest, as defined, with the person or entity. Existing law provides that, among other exceptions, this prohibition does not apply to services for a specific patient that are performed within, or goods that are supplied by, a licensee’s office or the office of a group practice.

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This bill would provide that this exception does not apply to advanced imaging, anatomic pathology, radiation therapy, or physical therapy for a specific patient that is performed within a licensee’s office or the office of a group practice. By expanding the scope of a crime, the bill would impose a state-mandated local program.

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The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

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This bill would provide that no reimbursement is required by this act for a specified reason.

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Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), enacts various health care coverage market reforms that take effect January 1, 2014. Among other things, PPACA establishes annual limits on deductibles for employer-sponsored plans and defines bronze, silver, gold, and platinum levels of coverage for the nongrandfathered individual and small group markets.

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Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance.

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Existing law requires that nongrandfathered care service plan and health insurance contracts that are issued, amended, or renewed on or after January 1, 2015, provide for a limit on annual out-of-pocket expenses for covered benefits, as specified.

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This bill would correct erroneous references in those provisions.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program:  begin delete no end delete begin insert yes end insert .

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

end insert

begin insert The Legislature finds and declares all of the
following: end insert

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(a) Recent studies by the Government Accountability Office
(GAO) examining self-referral practices in advanced diagnostic
imaging and anatomic pathology determined that financial
incentives were the most likely cause of increases in self-referrals.

end insert begin insert

(b) For advanced diagnostic imaging, the GAO stated that
“providers who self-referred made 400,000 more referrals for
advanced imaging services than they would have if they were not
self-referring,” at a cost of “more than $100 million” in 2010.

end insert begin insert

(c) For anatomic pathology, the GAO found that “self-referring
providers likely referred over 918,000 more anatomic pathology
services” than they would have if they were not self-referring,
costing Medicare approximately $69 million more in 2010 than if
self-referral was not permitted.

end insert begin insert

(d) In November 2012, Bloomberg News released an
investigative report that scrutinized ordeals faced by California
prostate cancer patients treated by a urology clinic that owns
radiation therapy equipment. The report found that physician
self-referral resulted in a detrimental impact on patient care and
drove up health care costs in the Medicare Program. The Wall
Street Journal, the Washington Post, and the Baltimore Sun have
also published investigations showing that urology groups owning
radiation therapy machines have utilization rates that rise quickly
and are well above national norms for radiation therapy treatment
of prostate cancer.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 650.02 of the end insert begin insert Business and Professions Code end insert
begin insert is amended to read: end insert

650.02.  

The prohibition of Section 650.01 shall not apply to
or restrict any of the following:

(a) A licensee may refer a patient for a good or service otherwise
prohibited by subdivision (a) of Section 650.01 if the licensee’s
regular practice is located where there is no alternative provider
of the service within either 25 miles or 40 minutes traveling time,
via the shortest route on a paved road. If an alternative provider
commences furnishing the good or service for which a patient was
referred pursuant to this subdivision, the licensee shall cease
referrals under this subdivision within six months of the time at
which the licensee knew or should have known that the alternative
provider is furnishing the good or service. A licensee who refers
to or seeks consultation from an organization in which the licensee
has a financial interest under this subdivision shall disclose this
interest to the patient or the patient’s parents or legal guardian in
writing at the time of referral.

(b) A licensee, when the licensee or his or her immediate family
has one or more of the following arrangements with another
licensee, a person, or an entity, is not prohibited from referring a
patient to the licensee, person, or entity because of the arrangement:

(1) A loan between a licensee and the recipient of the referral,
if the loan has commercially reasonable terms, bears interest at
the prime rate or a higher rate that does not constitute usury, is
adequately secured, and the loan terms are not affected by either
party’s referral of any person or the volume of services provided
by either party.

(2) A lease of space or equipment between a licensee and the
recipient of the referral, if the lease is written, has commercially
reasonable terms, has a fixed periodic rent payment, has a term of
one year or more, and the lease payments are not affected by either
party’s referral of any person or the volume of services provided
by either party.

(3) Ownership of corporate investment securities, including
shares, bonds, or other debt instruments that may be purchased on
terms generally available to the public and that are traded on a
licensed securities exchange or NASDAQ, do not base profit
distributions or other transfers of value on the licensee’s referral
of persons to the corporation, do not have a separate class or
accounting for any persons or for any licensees who may refer
persons to the corporation, and are in a corporation that had, at the
end of the corporation’s most recent fiscal year, or on average
during the previous three fiscal years, stockholder equity exceeding
seventy-five million dollars ($75,000,000).

(4) Ownership of shares in a regulated investment company as
defined in Section 851(a) of the federal Internal Revenue Code, if
the company had, at the end of the company’s most recent fiscal
year, or on average during the previous three fiscal years, total
assets exceeding seventy-five million dollars ($75,000,000).

(5) A one-time sale or transfer of a practice or property or other
financial interest between a licensee and the recipient of the referral
if the sale or transfer is for commercially reasonable terms and the
consideration is not affected by either party’s referral of any person
or the volume of services provided by either party.

(6) A personal services arrangement between a licensee or an
immediate family member of the licensee and the recipient of the
referral if the arrangement meets all of the following requirements:

(A) It is set out in writing and is signed by the parties.

(B) It specifies all of the services to be provided by the licensee
or an immediate family member of the licensee.

(C) The aggregate services contracted for do not exceed those
that are reasonable and necessary for the legitimate business
purposes of the arrangement.

(D) A person who is referred by a licensee or an immediate
family member of the licensee is informed in writing of the
personal services arrangement that includes information on where
a person may go to file a complaint against the licensee or the
immediate family member of the licensee.

(E) The term of the arrangement is for at least one year.

(F) The compensation to be paid over the term of the
arrangement is set in advance, does not exceed fair market value,
and is not determined in a manner that takes into account the
volume or value of any referrals or other business generated
between the parties.

(G) The services to be performed under the arrangement do not
involve the counseling or promotion of a business arrangement or
other activity that violates any state or federal law.

(c) (1) A licensee may refer a person to a health facility, as
defined in Section 1250 of the Health and Safety Code, or to any
facility owned or leased by a health facility, if the recipient of the
referral does not compensate the licensee for the patient referral,
and any equipment lease arrangement between the licensee and
the referral recipient complies with the requirements of paragraph
(2) of subdivision (b).

(2) Nothing shall preclude this subdivision from applying to a
licensee solely because the licensee has an ownership or leasehold
interest in an entire health facility or an entity that owns or leases
an entire health facility.

(3) A licensee may refer a person to a health facility for any
service classified as an emergency under subdivision (a) or (b) of
Section 1317.1 of the Health and Safety Code.

(4) A licensee may refer a person to any organization that owns
or leases a health facility licensed pursuant to subdivision (a), (b),
or (f) of Section 1250 of the Health and Safety Code if the licensee
is not compensated for the patient referral, the licensee does not
receive any payment from the recipient of the referral that is based
or determined on the number or value of any patient referrals, and
any equipment lease arrangement between the licensee and the
referral recipient complies with the requirements of paragraph (2)
of subdivision (b). For purposes of this paragraph, the ownership
may be through stock or membership, and may be represented by
a parent holding company that solely owns or controls both the
health facility organization and the affiliated organization.

(d) A licensee may refer a person to a nonprofit corporation that
provides physician services pursuant to subdivision (l) of Section
1206 of the Health and Safety Code if the nonprofit corporation
is controlled through membership by one or more health facilities
or health facility systems and the amount of compensation or other
transfer of funds from the health facility or nonprofit corporation
to the licensee is fixed annually, except for adjustments caused by
physicians joining or leaving the groups during the year, and is
not based on the number of persons utilizing goods or services
specified in Section 650.01.

(e) A licensee compensated or employed by a university may
refer a person for a physician service, to any facility owned or
operated by the university, or to another licensee employed by the
university, provided that the facility or university does not
compensate the referring licensee for the patient referral. In the
case of a facility that is totally or partially owned by an entity other
than the university, but that is staffed by university physicians,
those physicians may not refer patients to the facility if the facility
compensates the referring physicians for those referrals.

begin delete

(f) The

end delete

begin insert (f) end insert begin insert   end insert begin insert (1) end insert begin insert   end insert begin insert Except as specified in paragraph (2), the end insert prohibition of
Section 650.01 shall not apply to any service for a specific patient
that is performed within, or goods that are supplied by, a licensee’s
office, or the office of a group practice. Further, the provisions of
Section 650.01 shall not alter, limit, or expand a licensee’s ability
to deliver, or to direct or supervise the delivery of, in-office goods
or services according to the laws, rules, and regulations governing
his or her scope of practice.

begin insert

(2) The prohibition of Section 650.01 shall apply to advanced
imaging, anatomic pathology, radiation therapy, or physical
therapy for a specific patient that is performed within a licensee’s
office or the office of a group practice.

end insert

(g) The prohibition of Section 650.01 shall not apply to cardiac
rehabilitation services provided by a licensee or by a suitably
trained individual under the direct or general supervision of a
licensee, if the services are provided to patients meeting the criteria
for Medicare reimbursement for the services.

(h) The prohibition of Section 650.01 shall not apply if a licensee
is in the office of a group practice and refers a person for services
or goods specified in Section 650.01 to a multispecialty clinic, as
defined in subdivision (l) of Section 1206 of the Health and Safety
Code.

(i) The prohibition of Section 650.01 shall not apply to health
care services provided to an enrollee of a health care service plan
licensed pursuant to the Knox-Keene Health Care Service Plan
Act of 1975 (Chapter 2.2 (commencing with Section 1340) of
Division 2 of the Health and Safety Code).

(j) The prohibition of Section 650.01 shall not apply to a request
by a pathologist for clinical diagnostic laboratory tests and
pathological examination services, a request by a radiologist for
diagnostic radiology services, or a request by a radiation oncologist
for radiation therapy if those services are furnished by, or under
the supervision of, the pathologist, radiologist, or radiation
oncologist pursuant to a consultation requested by another
physician.

(k) This section shall not apply to referrals for services that are
described in and covered by Sections 139.3 and 139.31 of the
Labor Code.

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(l) This section shall become operative on January 1, 1995.

end delete

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begin insert SEC. 3. end insert   

end insert begin insert

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

end insert

begin delete

SECTION 1.  

Section 1367.006 of the Health and Safety Code
is amended to read:

1367.006.  

(a) This section shall apply to nongrandfathered
individual and group health care service plan contracts that provide
coverage for essential health benefits, as defined in Section
1367.005, and that are issued, amended, or renewed on or after
January 1, 2015.

(b) (1) For nongrandfathered health care service plan contracts
in the individual or small group markets, a health care service plan
contract, except a specialized health care service plan contract,
that is issued, amended, or renewed on or after January 1, 2015,
shall provide for a limit on annual out-of-pocket expenses for all
covered benefits that meet the definition of essential health benefits
in Section 1367.005, including out-of-network emergency care
consistent with Section 1371.4.

(2) For nongrandfathered health care service plan contracts in
the large group market, a health care service plan contract, except
a specialized health care service plan contract, that is issued,
amended, or renewed on or after January 1, 2015, shall provide
for a limit on annual out-of-pocket expenses for covered benefits,
including out-of-network emergency care consistent with Section
1371.4. This limit shall only apply to essential health benefits, as
defined in Section 1367.005, that are covered under the plan to
the extent that this provision does not conflict with federal law or
guidance on out-of-pocket maximums for nongrandfathered health
care service plan contracts in the large group market.

(c) (1) The limit described in subdivision (b) shall not exceed
the limit described in Section 1302(c) of PPACA, and any
subsequent rules, regulations, or guidance issued under that section.

(2) The limit described in subdivision (b) shall result in a total
maximum out-of-pocket limit for all covered essential health
benefits equal to the dollar amounts in effect under Section
223(c)(2)(A)(ii) of the Internal Revenue Code of 1986 with the
dollar amounts adjusted as specified in Section 1302(c)(1)(B) of
PPACA.

(d) Nothing in this section shall be construed to affect the
reduction in cost sharing for eligible enrollees described in Section
1402 of PPACA, and any subsequent rules, regulations, or guidance
issued under that section.

(e) If an essential health benefit is offered or provided by a
specialized health care service plan, the total annual out-of-pocket
maximum for all covered essential benefits shall not exceed the
limit in subdivision (c). This section shall not apply to a specialized
health care service plan that does not offer an essential health
benefit as defined in Section 1367.005.

(f) The maximum out-of-pocket limit shall apply to any
copayment, coinsurance, deductible, and any other form of cost
sharing for all covered benefits that meet the definition of essential
health benefits in Section 1367.005.

(g) For nongrandfathered health plan contracts in the group
market, “plan year” has the meaning set forth in Section 144.103
of Title 45 of the Code of Federal Regulations. For
nongrandfathered health plan contracts sold in the individual
market, “plan year” means the calendar year.

(h) “PPACA” means the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the
federal Health Care and Education Reconciliation Act of 2010
(Public Law 111-152), and any rules, regulations, or guidance
issued thereunder.

SEC. 2.  

Section 10112.28 of the Insurance Code is amended
to read:

10112.28.  

(a) This section shall apply to nongrandfathered
individual and group health insurance policies that provide
coverage for essential health benefits, as defined in Section
10112.27, and that are issued, amended, or renewed on or after
January 1, 2015.

(b) (1) For nongrandfathered health insurance policies in the
individual or small group markets, a health insurance policy, except
a specialized health insurance policy, that is issued, amended, or
renewed on or after January 1, 2015, shall provide for a limit on
annual out-of-pocket expenses for all covered benefits that meet
the definition of essential health benefits in Section 10112.27,
including out-of-network emergency care.

(2) For nongrandfathered health insurance policies in the large
group market, a health insurance policy, except a specialized health
insurance policy, that is issued, amended, or renewed on or after
January 1, 2015, shall provide for a limit on annual out-of-pocket
expenses for covered benefits, including out-of-network emergency
care. This limit shall apply only to essential health benefits, as
defined in Section 10112.27, that are covered under the policy to
the extent that this provision does not conflict with federal law or
guidance on out-of-pocket maximums for nongrandfathered health
insurance policies in the large group market.

(c) (1) The limit described in subdivision (b) shall not exceed
the limit described in Section 1302(c) of PPACA and any
subsequent rules, regulations, or guidance issued under that section.

(2) The limit described in subdivision (b) shall result in a total
maximum out-of-pocket limit for all covered essential health
benefits that shall equal the dollar amounts in effect under Section
223(c)(2)(A)(ii) of the Internal Revenue Code of 1986 with the
dollar amounts adjusted as specified in Section 1302(c)(1)(B) of
PPACA.

(d) Nothing in this section shall be construed to affect the
reduction in cost sharing for eligible insureds described in Section
1402 of PPACA and any subsequent rules, regulations, or guidance
issued under that section.

(e) If an essential health benefit is offered or provided by a
specialized health insurance policy, the total annual out-of-pocket
maximum for all covered essential benefits shall not exceed the
limit in subdivision (c). This section shall not apply to a specialized
health insurance policy that does not offer an essential health
benefit as defined in Section 10112.27.

(f) The maximum out-of-pocket limit shall apply to any
copayment, coinsurance, deductible, and any other form of cost
sharing for all covered benefits that meet the definition of essential
health benefits, as defined in Section 10112.27.

(g) For nongrandfathered health insurance policies in the group
market, “policy year” has the meaning set forth in Section 144.103
of Title 45 of the Code of Federal Regulations. For
nongrandfathered health insurance policies sold in the individual
market, “policy year” means the calendar year.

(h) “PPACA” means the federal Patient Protection and
Affordable Care Act (Public Law 111-148), as amended by the
federal Health Care and Education Reconciliation Act of 2010
(Public Law 111-152), and any rules, regulations, or guidance
issued thereunder.

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